Finality of assessments not objected to

The Supreme Court of Appeal (SCA) confirmed the finality of income tax assessments in the absence of any objections on 27 May 2015.

In Medox Limited v The Commissioner for SARS (20059/2014) [2015] ZASCA 74, Medox sought a declaratory order to nullify certain income tax assessments raised by the Commissioner. Following recovery from provisional liquidation, Medox submitted its 1996 Income Tax return. The Commissioner's 1996 assessment resulted in an assessed loss. Medox did not submit its 1997 and 2003 returns and submitted the remainder of the 1998 to 2010 returns but neglected to carry the assessed loss forward or set it off in subsequent years. Although the Commissioner's assessments for those years did not reflect the assessed loss, Medox did not object to these assessments. In 2009, Medox realised that it had failed to set off the assessed loss and that it had not submitted its 1997 return. Medox took the view that the 1998 and subsequent tax assessments were invalid, as the Commissioner failed to set off the assessed loss. As a result, it approached the High Court for a declaratory order.

At the time, the Income Tax Act provided that, in the absence of an objection, an assessment becomes ‘final and conclusive'. The Act also precluded the Commissioner from extending the period within which to object beyond three years from date of assessment. These provisions were replaced with effect 1 October 2012 along the lines of the current provisions contained in the Tax Administration Act. Medox unsuccessfully argued that the word ‘assessment' means ‘valid assessment'. The SCA disagreed and held that it would be in conflict with the intention of the legislature, based on clarity of language used in the provision, as it would almost grant aggrieved taxpayers carte blanche to approach the High Court where they disagree with an assessment. The SCA confirmed the onus to be on the taxpayer (and not the Commissioner) to submit returns and include assessed losses carried forward from previous years. The SCA dismissed the appeal but did not award costs to the Commissioner due to its ‘flagrant disregard' of the SCA's rules.

The Medox case highlights that assessments are final if no objection is lodged within the prescribed period in terms of the Tax Administration Act.

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